Online & mobile advertising under service tax radar: Industry speaks

With the new budget announcement, online and mobile publishers and advertising networks have been brought under the radar of service tax from now on. In April 2012, online and mobile advertising has been included in the ‘negative list’ for Service Tax, however, after two years of no service tax being applicable, this scene changes with the new budget announcement. While radio and television advertising was subjected to service tax and print media continues to remain under the negative list, the exit of digital advertising from the list is a concern.

We at Adgully asked some industry experts about how this new move by the government would influence the digital advertising environment on the whole. Also, now as the hand-holding by the government for the evolving media ends here (almost), what would be 2-3 immediate actions on the plan?

Neeraj Roy, MD & CEO, Hungama Digital Media Entertainment said, “Whilst it is very encouraging to see the government giving more attention to the internet and support of animation and gaming, I view the initial allocations as a small step in the right direction. China 

has a near $ 1 Trillion internet economy, India will transition from 2G to 4G and add another 400 million mobile internet users over the next 3 years, we need an unprecedented push toward digital for a significantly higher consumer adoption as it will spark productivity across sectors. The aspect of bringing back online advertising into the service tax ambit, whilst it is still a fledgling segment, is therefore almost a conflicting action and not a welcome move.”

Dippak Khurana, CEO and Co-founder, Vserv.mobi said, “The new government’s maiden budget proposes to levy service tax for online and mobile advertising which we believe will adversely affect the industry’s growth. It reflects differentiated treatment as traditional print media remains unaffected with respect to the tax purview but new digital media that is actually driving 

innovation will have to unfortunately bear the brunt. Currently, India’s exponential mobile penetration and app consumption patterns are driving the growth of the mobile advertising industry and this development could hamper innovation efforts of the entire ecosystem comprising of mobile development start-ups, advertisers and publishers. While the budget is in favour of small scale set ups and entrepreneurs, the provision for taxation is contrary in nature for budding developers and publishers.”

Amit Tripathi, MD, Ideate Labs said, "The biggest impact of this  ofcourse is going to be higher inventory costs, which in turn will make the ROI of the medium questionable. This was a surprise move and totally unexpected. At one hand the government speaks of e governance and digitisation of government departments and processes, while at the other hand they levy this tax on the industry. At the absolute other hand, this levels the playing ground. Hence if we look at it from the POV of the advertising industry, this makes all industries at par now and thus this is a move in the right direction, treating the digital industry at par with the other mature industries. While time will tell us what the exact nature of the impact is going to be, but a few things that will have to happen are as follows: Firstly, Wages are on the rise like never before owing to scarcity of talent. Hence Talent nurturing and innovative means of 

operations cost optimisation. This is most critical and will thus be the differentiator for survival. Hence Training initiatives for the industry will be most critical to ensure a fresh pool of talent enters the business and secondly While the savvy digital advertisers will not desert the medium and the investments in the medium will continue, the growth rates may see a small dip. This is therefore time for the industry to introduce innovative means of digital engagement and we should see some cutting edge work coming out from this. Innovation will be the differentiator and the bigger compelling factor now and not just Costs."

"I don't think that the Government will roll back this levy, hence the role of the industry leaders in keeping the momentum going will be tested in the short to medium term. Long term outlook still looks very positive," Tripathi adds. 

Tanmay Mohanty, MD, Performics and Resultrix said, “I would consider this as a good move by government that after two years of uncertainty this has been addressed.  The medium needs investment in large scale for better internet infrastructure in rural and semi urban market.  This will drive better penetration and more investment by marketers. Though this may overall impact client budget but in a long run will be beneficial to the industry.”

Sanjay Mehta, Joint CEO, Social Wavelength, said, "Well, I believe there wont be much difference or impact of mobile and online advertising being included in the service tax list. Though a new medium, digital on the whole is blooming and this we seen coming by a lot of people. While this may call for minor adjustment in the initial stage, over the time, I don't see service tax hampering digital deliveries. This, in my opinion will make way for a smooth process of transactions in the long run. While on television, sets of transactions are large (individually) but few in number; in digital its the other way round where individual transactions may be small on scale but many in numbers."

With this new amendment in the budget the industry feels that though the amendment is a boon but still there needs to a lot done in the online and mobile space. Arun Jaitley in his speech said, “To broaden the tax base in Service Tax, it is necessary to prune the negative list and exemptions to the extent possible. Accordingly, the negative list has been reviewed and service tax leviable 

currently, on sale of space or time for advertisements in broadcast media, is being extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax.” [By Aanchal Kohli | Twitter: @aanchalkohli]